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Claiming director redundancy when company has a Bounce Back Loan

As the UK attempts to exit Covid-19 restrictions in summer 2021, as per the government’s roadmap, businesses are opening their doors once again and hoping that trade can resume at pre-Covid levels.

However, the stark reality for many UK companies is that distress is on the rise and cash flow pressures are being felt far and wide.

For over a year, many businesses have been able to defer tax payments, landlord payments, and staff payments (furlough) - whilst also taking out government loans. Now, HMRC is looking to retrieve those deferred payments, landlord goodwill is wearing thin, and the government’s well of support will soon run dry as furlough comes to an end and repayments for Bounce Back Loans and Business Interruption Loans begin.

This perfect storm of cash flow pressures will undoubtedly lead to a rise in business closures, which begs the question: Can a company go into liquidation if it has an existing bounce back loan?

The answer in many cases is, yes.

Through our extensive understanding of employment law and 40 years’ experience working in director redundancy, we have been at the forefront of a novel solution developed in tandem with several large accountancy practices and one of the UK’s largest insolvency firms.

Subsequently, we are currently advising hundreds of company directors and IR35 contractors who have taken out a Bounce Back Loan and are now struggling to repay it, because their company hasn’t recovered. The key issue for these directors is the Bounce Back Loan itself and concerns around liability, but we can advise directors in this situation on how they can potentially walk away from some or all of that Bounce Back Loan when their company goes into liquidation.

Hundreds of thousands of Bounce Back Loans were taken by UK companies and some are already struggling to repay the first instalment which was due in June 2021. If you find yourself in this situation, we can provide free, expert advice that could ultimately reduce or eradicate your Bounce Back Loan exposure. Some directors are attempting to strike off (dissolve) their company but these applications are being rejected due to the outstanding Bounce Back Loan. Directors are left with no other choice but to liquidate but many do not have the funds to pay for it due to cash flow pressure. A successful director redundancy award provides the necessary funds.

Some directors and IR35 contractors have concerns around their misuse of the Bounce Back Loan, such as using it for personal funds rather than legitimate business expenditure. In some cases, this can create an overdrawn directors’ loan account (ODLA) and again, we can advise on this situation and suggest how to reduce your ODLA liability by utilising employment law and directors’ statutory entitlements to national minimum wage (NMW). In many cases, we have been able to reduce or even completely balance out a company director’s overdrawn director’s loan position following Bounce Back Loan misuse.

An important issue to note for directors affected by recent IR35 changes is that you only have six months from your employment termination date to utilise this solution of using a redundancy award which means you should take advice as early as possible so as not to miss out on the application process is. Time is also of the essence if your Bounce Back Loan repayments have begun. Through and our insolvency partner, we have that solution ready and available for you.

Contact me today for free and expert advice on your Bounce Back Loan situation.

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